Take the uncertainty out of international trade
Make overseas purchases with increased flexibility, strengthen relationships with business suppliers and put new opportunities within reach with an import letter of credit.
An export letter of credit will include all payment terms known in advance of shipment, including timelines and dispatch dates.
How import and export letters of credit can help your business
Letters of credit can reduce the payment risk involved in international trade. For instance, adding confirmation to the document can remove the risk of non-payment and associated country risks.
More flexibility. More confidence.
Export letters of credit can ensure payment and help you feel more comfortable with an international business partner. They can also improve your cash flow and payment terms.
Control the process
With letters of credit, you can know exactly when you’ll be paid and what the terms will be in advance of shipment.
Frequently asked questions
“Documentary letters of credit” is an umbrella term for both export and import letters of credit. That is, an export letter of credit and an import letter of credit are both types of documentary letters of credit.
No. A letter of credit allows a financial institution to act as a middle party for a transaction. It is a mechanism for securing payment and performance obligations. It is a guarantee from a credit-worthy financial institution.
An import letter of credit is issued by the buyer’s financial institution, which means the bank will pay the exporter if the buyer does not pay on time. An export letter of credit is an import letter of credit received by the seller’s bank.
A documentary letter of credit (also known as a commercial or payment letter of credit) is issued by a buyer of an international product or service. The buyer and seller will negotiate which documents must be presented to the issuing financial institution to release payment to the seller. These documents may include, but are not limited to:
- Commercial invoice (proof of value, bill of lading or proof of shipment)
- Packing list (proof of packing), or inspection certificate (proof of quality)
- Insurance certificate (proof of insurance)
All conditions of payment will be in the letter of credit. The letter of credit (LC) protects the seller as a guarantee for payment moves from the buyer to the buyer’s bank once the LC is issued. The LC also protects the buyer as the issuing financial institution will hold funds until documents are received from the seller. When a seller makes a demand that complies with the letter of credit, the financial institution is obligated to pay.
A standby LC acts as a form of security for a future performance or financial obligation. Whether the LC is called or not depends on whether the issuer has performed or paid the financial obligation. This type of LC “stands by” if or when a beneficiary demands on the instrument. Like a documentary LC, when a beneficiary makes a complying demand, the financial institution is obligated to pay.
It starts with a conversation between you and your financial institution. (If that’s us, great! Reach out to your usual ATB contact or use the information below.)
Please note that you’ll need an authorized credit facility for the full amount of the letter of credit or guarantee.
When the issuing financial institution is satisfied that all documents presented by the exporter, (either directly or through their financial institution) are correct, the issuing financial institution will wire payment to the financial institution nominated to receive payment as stated in the LC. Most often this is the financial institution of the exporter.